I am having a very hard time with this psychological aspect of trading. I trade a discretionary chart reading method based on momentum reading and accumulation / distribution chart patterns. Been studying the method / charts for close to 10 months now and there is definitely an edge there in my ability to foresee possible moves before they happen. It's not perfect, and I get confused between time frames still but it is a method with an edge. The problem is that when I start trading with leverage on full size futures contracts I have a run of good trades and make some money but then as soon as I get caught in a bad trade where I am wrong in my analysis or my entry is not that great, I just let my account bleed out and only bail when the pain is very bad, rather than when I knew I should have. There is some kind of psychological issue that makes me self sabotage for being wrong on the trade, like a punishment or something. I know I should bail but just cannot bring myself to doing it, then after I feel terrible shame for not being able to act. I've read both the Mark Douglas books multiple times, read Psycho-Cybernetics and spend lots of time thinking about this stuff but still last week I got blown out on a stupid trade where I couldn't accept that my entry was wrong! This was after a month and a half of daily trading on GC / CL. I can imagine that this is a common enough issue for discretionary traders. I am getting tired of blowing out accounts or getting margin calls. I don't want to give up on trading but I cannot seem to learn this very important risk management lesson for some reason. It's frustrating to have to keep funding my account out of my savings. I have enough to keep doing this for a long time but still it is not an ideal situation obviously. This is a lesson that I must learn NOW before I do even more damage to myself financially and emotionally. Has anyone that had this issue been able to over come it? How long did it take? What path did you take to get your head right?
Your problem is not accepting small losses the main problem is your system of trading whereby small losses turn into profits after some grind and wait. Best is to make a definite big stop beyond which you will not let trade go against, no matter what. Ex: $500 on a trade or a day etc. It helps alot when market suddenly makes a move and there is little time to analyze what really is going on.
"I am getting tired of blowing out accounts or getting margin calls." If you are getting many margin calls, I believe your system is broken. Not an active trader here...Just my thoughts. I buy and hold (covered calls). It sounds like maybe two issues. #1. Pride...Not willing to accept your loss to fight another day or hour. #2. Gambling issues...Just wondering when does a trader becomes a gambler?? I don't know...would love to know the answer. Think I create a thread on that one.
Yes basically when I refuse to take my stop out it goes from trading to gambling. I was never into gambling at all, in fact I really dont enjoy gambling card games or betting in general. I am trying to figure out how to get my gead right to function like a trader rather than a gambler. I am naturally a risk taker and enjoy extreme sports and being in danger. This may have something to do with it, but those activities I have control over the outcome. In trading I do not. This is a hard concept to accept.
Time stop .. edge is limited to time from entry. Calculate average length of your winners, or create a time distribution of historical trades. Exit if exceeding time point. When trading at tick level, time stops are ideal. If a tick trade is not making money within a few seconds, you need to exit.
Good question - very fundamental to successful trading - and toc gave a precise answer. I'd only add that too much trading gets done based on entry patterns rather than a wider perspective. Over-focusing like that can get you into trades against the underlying trend and the implication is you need a defined exit pattern to get out again. But what is an exit signal? So often, the TA of a position weakens progressively with no formal or named adverse signal, bleeding the profits into losses and small losses into bigger losses. I gauge each trade by a range of criteria, up to 12, and I want as many as possible in place, at least 8, before I'll get in. I don't automatically exit if the score falls below 8, but those positions get a long hard look and in most cases I do exit. The idea is to keep assessing the probability of price continuation. If at entry this is more than 50% (as it must be), why hold a position in which it has dropped to 45%?
I been using time stops for 26 years and based on MAE/MFE. Time is money, learn from the winning trades about how many bars to get to an area where you can put your PS to breakeven plus one tick to pay for fees, if at a loss when end of time, your target is now breakeven plus fees. It is one of many ways I have reduced losses as I only concentrate on how low percentages of loss I can do instead of concentrating on how much I can make. "We" can only somewhat control how much we are going to lose, and thankfully make more than we lose if market decides to take off in our direction. Perhaps change your thinking of making money to percentages of not losing and have a "don't care" outlook how much you trying to make. When you can lose less, guess what the account should do? Hypnosis also worked for me, first year went several times? Don't remember how many but quite a few times and even still go 2-4 times a year to work on "troubles" of my life.
Even small losses...can very easily add up to big losses, if you don't have any true trading skill or approach or tactics. Try to look at and consider the overall, collective picture of your trading. -- What are you doing, and why, -- Does it make somewhat logical, rational, realistic sense? Or are you simply, purely gambling? It's easier to climb Mount Everest if you've truly done and considered your homework. If you haven't done your homework, then you will very easily get fazed and shooken and spooked and accomplish nothing at all. I know this may be somewhat vague, cloudy advice, but you will truly see things in absolute clarity...when it's your time, Kind of like Neo in The Matrix , ...he is, The One.
^^ It`s always easy to detect a bullshitter that provides generic, ambiguous, arbitrary Fodder or so called advice that amounts to nothing but Tapioca defecation! Some people can`t comprehend that they are transparent & those the he claims to be or those that do "win" can see right thru him!...It`s so obvious, its comical at this point... an Elephant never forgets! LL